CH 9: Discussion Board

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Utilize this discussion space to post questions about Chapter 9 homework, activities, or material covered in class.

To receive full credit for this discussion post do the following:

[1] Read the following article: Trade Data Show Importance of Capital Goods

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[2] Respond to the following question: The article mentions that a tax cut proposed by President Obama that would allow businesses to deduct 100% of the cost of new equipment purchased by the end of 2011 might increase capital spending. How would this proposed tax cut affect the cash flows included in the net present value calculation for equipment purchased in 2011?

[3] List the most valuable thing or your favorite topic we covered in class this summer and why.

Trade Data Show Importance of Capital Goods By Kathleen Madigan Sep 10, 2010 12:56 pm ET The unexpectedly large narrowing in the July trade deficit highlights how this recovery is led by capital spending, usually a second-tier sector behind consumer spending, The U.S. trade deficit shrank to $42.8 billion in July from $49.8 billion in June, in part because reduced demand in the U.S. is curtailing imports. At the same time, though, U.S. exports rose 1.8% in July to $153.3 billion: their highest level since October 2008. About half of the gain came from jet shipments. That's not a surprise since aircraft is still one sector the U.S. dominates. But industrial machinery and computer exports also increased, a sign that U.S. businesses are not the only companies around the world investing in new equipment. Capital-goods exports, excluding motor vehicles, are up 13.6% so far this year, accounting for 23% of export growth. While capital projects abroad, especially in emerging economies, are designed to expand production capacity, U.S. businesses are spending to modernize existing facilities and to boost productivity in their work force. Business spending on equipment accounted for one-third of gross domestic product growth in the first quarter and almost all of second-quarter GDP growth. The increased foreign demand, coupled with spending here in the U.S., is why business equipment is leading economic growth. U.S. output of business equipment jumped 11.7% in the year ended in July, compared with a 7.7% gain for all manufacturing production. Moreover, capital spending could accelerate further into the next year if President Obama gets his wish of tax support for businesses. He proposed Wednesday to allow businesses to deduct 100% of the cost of new equipment purchased by the end of 2011. While economists debate how much of a boost the tax cut will give, it certainly gives companies a reason to buy sooner rather than wait until 2012. The July trade data also showed a sharp 2.1% drop in imports. Capital-goods imports fell slightly after surging in May and June. The bigger declines came in consumer goods and vehicles and parts. In one respect, those falls reflect the slowdown in consumer spending evident this summer. The fall-off in July, however, is interesting for the import outlook since the National Retail Federation has reported that July might have been the peak for cargo shipments of retail goods this year. (Typically, October is the peak month.) "Retailers have stocked up early on much of their holiday merchandise in order to avoid some of the supply chain disruptions seen earlier in the year," said the report released Tuesday If that's the case, then consumer-goods imports will continue to slow for the rest of the year, giving a boost to GDP growth. Indeed, although it is only the first month of three, the July trade gap suggests foreign trade could be adding a half-percentage point to GDP growth this quarter. That contribution may not seem like much, but it's significant for an economy on track to grow only about 2% this quarter. Trade Data Show Importance of Capital Goods By Kathleen Madigan Sep 10, 2010 12:56 pm ET The unexpectedly large narrowing in the July trade deficit highlights how this recovery is led by capital spending, usually a second-tier sector behind consumer spending, The U.S. trade deficit shrank to $42.8 billion in July from $49.8 billion in June, in part because reduced demand in the U.S. is curtailing imports. At the same time, though, U.S. exports rose 1.8% in July to $153.3 billion: their highest level since October 2008. About half of the gain came from jet shipments. That's not a surprise since aircraft is still one sector the U.S. dominates. But industrial machinery and computer exports also increased, a sign that U.S. businesses are not the only companies around the world investing in new equipment. Capital-goods exports, excluding motor vehicles, are up 13.6% so far this year, accounting for 23% of export growth. While capital projects abroad, especially in emerging economies, are designed to expand production capacity, U.S. businesses are spending to modernize existing facilities and to boost productivity in their work force. Business spending on equipment accounted for one-third of gross domestic product growth in the first quarter and almost all of second-quarter GDP growth. The increased foreign demand, coupled with spending here in the U.S., is why business equipment is leading economic growth. U.S. output of business equipment jumped 11.7% in the year ended in July, compared with a 7.7% gain for all manufacturing production. Moreover, capital spending could accelerate further into the next year if President Obama gets his wish of tax support for businesses. He proposed Wednesday to allow businesses to deduct 100% of the cost of new equipment purchased by the end of 2011. While economists debate how much of a boost the tax cut will give, it certainly gives companies a reason to buy sooner rather than wait until 2012. The July trade data also showed a sharp 2.1% drop in imports. Capital-goods imports fell slightly after surging in May and June. The bigger declines came in consumer goods and vehicles and parts. In one respect, those falls reflect the slowdown in consumer spending evident this summer. The fall-off in July, however, is interesting for the import outlook since the National Retail Federation has reported that July might have been the peak for cargo shipments of retail goods this year. (Typically, October is the peak month.) "Retailers have stocked up early on much of their holiday merchandise in order to avoid some of the supply chain disruptions seen earlier in the year," said the report released Tuesday If that's the case, then consumer-goods imports will continue to slow for the rest of the year, giving a boost to GDP growth. Indeed, although it is only the first month of three, the July trade gap suggests foreign trade could be adding a half-percentage point to GDP growth this quarter. That contribution may not seem like much, but it's significant for an economy on track to grow only about 2% this quarter